PensionsAug 5 2021

Pension funds urged to join investment big bang

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Pension funds urged to join investment big bang
Credit: Chris Ratcliffe/Bloomberg
ByAmy Austin

Boris Johnson and Rishi Sunak have urged pension schemes to put more of savers’ cash into UK assets to fuel the economy’s post-pandemic recovery.

In a letter to the UK’s institutional investors, published yesterday (August 4), the prime minister and chancellor said the country needs an ‘investment big bang’ to unlock the hundreds of billions of pounds sat in schemes and use it to drive the UK’s recovery.

The letter stated: “It’s time we recognised the quality that other countries see in the UK, and back ourselves by investing more money into the companies and infrastructure that will drive growth and prosperity across our country.”

The pair pointed out that some of the world’s largest pension funds, including from Canada and Australia, have benefited from the opportunities that UK long term investments afford, while UK investors are under-represented in owning these assets. 

The letter stated: “For example, over 80 per cent of UK defined contribution pension funds’ investments are in mostly listed securities, which represent only twenty percent of the UK’s assets. 

“While we are glad that international investors prize UK assets, and are working hard to attract even more inward investment, we also want to see UK pension savers benefitting from the fruits of UK ingenuity and enterprise, being given the opportunity to back British success stories, and secure higher returns and better retirements.”

To make this possible, the government said it is trying to remove obstacles and costs when making long-term, illiquid investments in the UK in order to encourage a change in behaviour.

For example, the Department for Work and Pensions is reforming the cap on fees that defined contribution schemes are charged so that savers can invest in higher risk sectors, where bigger performance fees are often common.

The letter stated: “Whether you are a trustee or manager of a DC or DB pension fund, running an insurance company or advising investors on their investment strategy, we are challenging you this summer to begin to invest more in long-term UK assets, giving pension savers access to better returns and enabling them to see their funds support an innovative, healthier, greener future for their country.

“We know that this will require a change in mindset for many investors that won’t happen overnight, but that is why this change needs to start now.”

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